Rough Rice Futures Trading Strategy – Backtest, Example
Rough Rice futures offer an easy way to participate in the rice market, which is one of the most consumed grains in the world. Also known as paddy rice, rough rice is the whole rice grain that is still covered by the protective hull. Removing the hull gives brown rice, which is believed to have great health benefits. With rough rice futures, you can speculate on the direction of rice prices or hedge your exposure in the rice market. What is your rough rice futures strategy?
A rough rice futures strategy is a trading method you can use to trade rough rice futures profitably. Rough rice futures refer to a tradable, standardized contract to receive or deliver a specified quantity of rough rice on a future date, at a pre-agreed price.
The contract trades on the CME Globex platform, and at expiry, it is settled by physical delivery. Your rough rice futures strategy should include fundamental and technical analysis of the market to know when to enter and exit a trade profitably.
In this post, we answer some questions about the rough rice futures strategy. After explaining the basics, we show you a backtested strategy.
What are Rough Rice futures?
A staple food for the world’s two largest populations and fastest-growing economies — India and China — rice is consumed by more than half of the people in the world, which makes it the most-consumed grain on the planet. As a result, rough rice futures are actively traded on commodity exchanges around the world.
Rough rice futures represent a legally binding agreement to receive or deliver the specified quantity of rough rice on a future date, at a pre-agreed price. The contract trades on the CME Globex platform and is settled by the physical delivery of the specified quantity and quality of rough rice at the expiration of the contract. Traders who just want to speculate on the direction of rice prices without getting involved in the delivery can close out their trades before expiry or roll over their contracts.
What is a Rough Rice futures strategy?
A rough rice futures strategy refers to the methodologies and techniques you can use to trade the contract profitably, and these would include technical and fundamental analyses of the rough rice futures market. To succeed in trading the rough rice futures market, you will need a robust trading strategy that offers precise entry and exit signals. In addition, your rough rice futures strategy must include techniques for position sizing, risk management, and so on.
Rough Rice futures strategy backtest
A strategy backtest with trading rules and settings is coming shortly.
What is the seasonality of Rough Rice futures?
The seasonality of rough rice futures refers to the tendency of the asset’s price to move in a fairly predictable manner during certain periods of the year, such as months or seasons like winter and summer.
Rough rice futures tend to perform better during the Spring and Fall seasons than during the Winter and Summer seasons, as you can see in the rough rice seasonality chart below:
What moves the Rough Rice — What affects the Rough Rice the most?
One of the factors that move the rough rice market is the dynamics of rice inventories in the biggest producing and consuming countries. When there is more demand and less production, rough rice prices rise. Another factor is trade policies, especially the ones that affect the import and export of rice. For example, trade wars between nations can also affect the price of rice.
Changing demands in the top consuming countries, especially China and India, is also another factor. Naturally, as the population increases, there should be more demand for rice; however, changes in consumer preferences may lead to a decline in demand.
Finally, changes in climatic conditions, such as drought and heat, can affect the production and supply of rice, as rice is very sensitive to water levels.
How are Rough Rice futures traded?
Rough rice futures contracts are traded on the CME Group’s CBOT exchange, which can be accessed from anywhere through the Globex electronic platform. The contract trades from Sunday – Thursday, from 7:00 p.m. – 9:00 p.m. CT (with Pre-Open Sunday: 4:00 p.m. – 7:00 p.m. CT), and Monday – Friday: 8:30 a.m. – 1:20 p.m. CT (with Pre-Open Monday – Thursday: 4:45 p.m. – 7:00 p.m. CT).
One contract unit is equivalent to 2,000 hundredweights (cwt) (~ 91 Metric Tons) of rough rice, and the pricing is in US dollars or cents per cwt.
There are monthly contracts (Jan, Mar, May, Jul, Sep, Nov) listed for 7 months. Trading terminates on the business day prior to the 15th calendar day of the contract month, and settlement on contract expiry is by physical delivery.
How do you start trading Rough Rice futures?
You would need a futures broker that can grant you access to the exchanges where rough rice futures contracts are traded and also help to clear your trades. To start trading rough rice futures, register with a futures broker, like TradeStation, and fund your account. Since futures contracts are leveraged instruments, all you need is a little more than the margin requirement.
If you just want to speculate on price fluctuations, you may want to trade the rough rice CFDs that track rough rice futures. With a CFD contract, you are in an agreement with the broker to exchange the price difference between the opening and closing of a trade, so you don’t have to worry about contract expiry and asset delivery. CFD brokers, like IG, offer rough rice futures CFD.
What is the Rough Rice trading at?
Rough rice futures were trading at $16.715 per cwt as of December 9, 2022. See the chart here on the CME platform chart. The chart (ZR) was captured from TradingView.
Note that the price changes from time to time, so the price quoted here may not be the price it’s trading when you are reading this post. Click on either of those links to get the real-time price on the CME platform or directly from TradingView.
What’s Rough Rice futures hour?
The trading schedule for rough rice futures on the CME Globex platform is as follows:
Sunday – Thursday, from 7:00 p.m. – 9:00 p.m. CT (with Pre-Open Sunday: 4:00 p.m. – 7:00 p.m. CT)
Monday – Friday: 8:30 a.m. – 1:20 p.m. CT (with Pre-Open Monday – Thursday: 4:45 p.m. – 7:00 p.m. CT)
Where can I find trading charts?
The chart is available on any trading platform that provides chart services. If your platform does provide charts, you can use TradingView, which provides free access to the charts of various instruments. However, to connect TradingView to your broker, you must subscribe to its Pro services. From the CME platform, you can also access the TradingView chart.
Also, Yahoo Finance and Barchart are two other sites where you can find rough rice futures charts. You can also subscribe to trading charts through a third-party platform like MultiCharts.
What are the trading symbols for Rough Rice futures?
The trading symbol and clearing product codes for rough rice futures are as follows:
- CME Globex: ZR
- CME ClearPort: 14
- Clearing: 14
What is the specification for the Rough Rice futures contract?
One contract unit is equivalent to 2,000 hundredweights (cwt) (~ 91 Metric Tons) of rough rice, and the price quotation is in US dollars or cents per cwt. The minimum price fluctuation is 1/2 cent per cwt (0.005), which translates to a tick size of $10.00 per contract.
There are monthly contracts (Jan, Mar, May, Jul, Sep, Nov) listed for 7 months. Trading terminates on the business day prior to the 15th calendar day of the contract month, and settlement on contract expiry is by physical delivery.
Why should you start trading Rough Rice futures?
The reason why you may want to trade rough rice futures depends on your situation:
- If you are a rice farmer, you can use the contract to secure good prices ahead of harvest
- If you run a rice processing plant, you would trade the contract to ensure a stable supply of rough rice
- If you are an investor, you may trade the contract to diversify your portfolio into the soft commodity market
- If you are a short-term trader, you may trade to speculate on price fluctuations or benefit from spread trading
- You can also trade the contract to hedge against inflation, as commodity prices increase with inflation
What is the contract size?
One contract unit is equivalent to 2,000 hundredweights (cwt) (~ 91 Metric Tons) of rough rice. Given that the current price of rough rice futures, as of writing, is $16.715 per cwt, the USD worth of one contract is $33,430. That is, $16.715 X 2,000 = $33,430.
What is the tick size?
The tick size of this futures contract is $10.00 per contract.
What is the minimum price fluctuation for Rough Rice futures?
The minimum price fluctuation of this contract is 1/2 cent (0.005) per cwt.
Are there any ETFs?
No, there is no ETF that offers pure-play exposure to oat prices. However, there are many ETFs that track the general grain market. Some of them include:
- iPath Series B Bloomberg Grains Subindex Total Return ETN (JJG)
- ELEMENTS Linked to the ICE BofAML Commodity Index eXtra Grains Total Return (GRU)
What factors affect Rough Rice prices?
There are many factors that can affect the price of rough rice. These are some of them:
- Rice inventories
- Trade policies
- Demands in the top consuming countries
- Climatic condition
- Energy prices
What is the all-time high for Rough Rice futures?
Based on the TradingView chart for rough rice futures, the all-time high of the rough rice futures contracts is $25.070 per cwt, which it reached in April 2008.
What are the biggest risks in trading Rough Rice futures?
The biggest risks when trading any type of futures, including rough rice futures, come from adverse price movements. The reason is that futures are a leveraged instrument. With leveraged instruments, losses are calculated using the actual value of the contract size traded, rather than the margin deposited.
For example, if you trade with a 20x leverage, a 1% adverse movement would lead to a 20% loss, and a 5% negative movement would result in a 100% loss in your account — your account will be wiped out, and if the broker does not guarantee negative balance protection, you may end up owing the broker.
Another problem is the issue of liquidity. If there is low liquidity, you may find it difficult to exit your position, as there may not be anyone willing to take the opposite end of your trade. It may also lead to widened spreads.
What is the settlement method?
Physical delivery
What is the settlement procedure?
Each trading day, CME Group staff determines the daily settlements in CBOT Rice (ZR) futures on trading activity on CME Globex between 13:14:00 and 13:15:00 Central Time (CT), the settlement period.
On the day of the expiration of a contract, CME Group staff determines the final settlement price of the expiring CBOT Rough Rice (ZR) futures contract based on trading activity on CME Globex between 12:00:00 and 12:01:00 Central Time (CT), which is the settlement period.
What is the block minimum for Rough Rice futures?
There is no block minimum eligibility for this contract.
What is the difference between Rough Rice futures and the CFD for Rough Rice?
Rough rice futures contracts have expiration dates and may involve the delivery of the asset, while rough rice CFDs do not have those issues.
Which forex pair is the same as Rough Rice futures
Rough Rice CFD
What are some important dates for this market?
Some of the important dates in the rough rice market include:
- 1994 when rough rice futures and options on futures were introduced
- April 2008 when rough rice futures made the current all-time high of $25.070
What is the highest level Rough Rice has ever been — its all-time high?
Based on the TradingView chart for rough rice futures, the highest price rough rice futures contract has ever traded was $25.070 per cwt, which happened in April 2008.
What is the lowest level Rough Rice has ever been — its all-time low?
Based on the TradingView chart for rough rice futures, the lowest price rough rice futures contract has ever traded was $3.565 per cwt, which happened in April 2002.
Conclusion
With a rough rice futures strategy, you can diversify your portfolio into the soft commodity market, speculate on the direction of rice prices, or hedge your exposure in the rice market.
FAQ:
What factors influence Rough Rice prices, and how can market movements be analyzed?
Rough Rice prices are influenced by factors such as global rice inventories, trade policies affecting import and export, changing demands in major consuming countries like China and India, and climatic conditions affecting rice production. Analysis involves studying these variables through both fundamental and technical lenses.
How are Rough Rice futures traded, and what are the trading hours and platforms?
Rough Rice futures are traded on the CME Group’s CBOT exchange, accessible through the Globex electronic platform. Trading occurs from Sunday to Thursday, with specific hours (7:00 p.m. – 9:00 p.m. CT and 8:30 a.m. – 1:20 p.m. CT). Platforms like TradingView, CME, and others provide access to trading charts.
How do I start trading Rough Rice futures, and what are the initial steps?
To start trading Rough Rice futures, register with a futures broker (e.g., TradeStation), fund your account, and understand margin requirements. Leverage allows trading with a little more than the margin requirement. For speculative trading without asset delivery concerns, trading Rough Rice CFDs is an alternative.